Starter Corp. v. Converse, Inc.

Citation170 F.3d 286
Decision Date12 March 1999
Docket NumberNo. 97-9030,97-9030
PartiesSTARTER CORPORATION, Plaintiff-Counter-Defendant-Appellant, v. CONVERSE, INC., Defendant-Counter-Claimant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Margaret M. Zwisler, (Richard A. Ripley, Elizabeth B. McCallum, Diane E. Wolf, Howrey & Simon, Washington, D.C., of counsel), for Plaintiff-Counter-Defendant-Appellant.

Harley I. Lewin, (G. Roxanne Elings, Lewin & Laytin, P.C., New York, NY, of counsel), for Defendant-Counter-Claimant-Appellee.

BEFORE: PARKER, Circuit Judge, EGINTON, * and GLASSER, ** District Judges. ***

PARKER, Circuit Judge:

Starter Corporation ("Starter") appeals from a final judgment of the United States District Court for the Southern District of New York (Charles S. Haight, Senior Judge ) entered July 29, 1997 issuing a declaratory judgment and awarding a permanent injunction following a jury verdict in favor of Converse Inc. ("Converse") on the issues of trademark infringement, breach of contract, and equitable estoppel.

I. BACKGROUND

Since 1917, Converse has produced primarily athletic footwear bearing various trademarks which contain a five-pointed star ("Converse Star Marks") registered with the United States Patent and Trademark Office (the "PTO"). Since 1971, Starter has designed and sold athletic apparel and owns three principal trademarks: (1) the name "Starter;" (2) the "S-and-Star Mark;" and (3) the composite mark (combining marks (1) and (2)) (the latter two marks shall be referred to jointly as the "Starter Star Marks"). Starter does not manufacture or sell shoes bearing the Starter Star Marks, except for a currently marketed "Rugged Terrain" shoe, where the marks are incorporated into another logo, and a 1987-88 children's shoe with a Mets logo on one side and one of the disputed marks on its heel.

In early 1988, Starter filed an application with the PTO to register the Starter Star Marks for use on apparel and shoes (the "1988 Application"). Converse opposed the application. Extensive negotiations began between Starter and Converse through their attorneys, resulting in a written agreement in January 1990 (the "1990 Agreement"). Under the 1990 Agreement, Starter agreed to amend the 1988 Application "to delete the goods 'shoes and sneakers,' without prejudice." In addition, Converse: (i) agreed to withdraw its opposition to the 1988 Application and Starter's Canadian application; (ii) consented to Starter's registration of the plain "Starter" mark for apparel including footwear; and (iii) consented to Starter's registration of the S-and-Star mark for apparel excluding footwear. In a cover letter enclosing the draft written agreement, Starter stated that the 1990 Agreement would settle the "present dispute" and that Starter was "not using a star logo on shoes or sneakers, and has no plans for doing so. Consequently, we feel that the language of this agreement takes care of any real disputes between the parties."

In 1995, there was a major change in the apparel industry called "head-to-toe" marketing whereby universities and athletic teams began to purchase all of their athletic apparel, from headgear to shoes, from one provider. A former CEO from Converse agreed that "head-to-toe" marketing created a "legitimate business concern" among those selling sports apparel to those entities. In 1993, in order to enter the "head-to-toe" market, Starter again filed an application to register Starter Star Marks for use on shoes (the "1993 Application"). Again, Converse opposed. Converse advised Starter that if it sold shoes bearing the Starter Star Marks, Converse would sue for trademark infringement.

The Proceedings Below

On May 19, 1995, Starter filed this case pursuant to 28 U.S.C. §§ 2201-2202, alleging that it was prepared immediately to bring footwear bearing the Starter Star Marks to market and seeking a declaratory judgment that using its Starter Star Marks on shoes would not infringe upon the Converse Star Marks pursuant to 15 U.S.C. § 1115 et seq. 1 Converse answered the Complaint alleging that Starter was barred from using the Starter Star Marks on shoes based on either (i) contractual estoppel, arising from the 1990 Agreement, or (ii) equitable estoppel, arising from Starter's false representation to Converse that it would not use the Starter Star Marks on footwear and Converse's reasonable and foreseeable reliance on this representation to its detriment.

Converse also brought six counterclaims for federal and common law infringement, dilution and unfair competition, and asked the district court for injunctive relief forbidding Starter from using its marks on footwear and from registering its marks for use on footwear. Starter moved to dismiss Converse's counterclaims and Converse stipulated to such a dismissal. Shortly before trial, however, Converse moved to reassert its counterclaims. The district court denied the motion on the ground of prejudice to Starter on the eve of trial. See Starter Corp. v. Converse, Inc., No. 95 Civ. 3678, 1996 WL 684165 (S.D.N.Y. Nov. 26, 1996).

Both parties moved for summary judgment on Converse's estoppel defenses. The district court denied both parties' summary judgment motions finding that the 1990 Agreement was not completely integrated and also "ambiguous," making the terms of the agreement and extrinsic evidence thereto a question of material fact for the jury. See Starter Corp. v. Converse, Inc., No. 95 Civ. 3678, 1996 WL 706837, (S.D.N.Y. Dec. 3, 1996).

Before trial, Converse requested that the parties be realigned. In a memorandum opinion and order, the district court held that it would "re-align Converse as plaintiff if, and only if, it is prepared to concede that Starter satisfies the second [and the only disputed] ... prong" of this Court's test for declaratory judgment jurisdiction in a trademark case, namely, that Starter has an " 'actual intent and ability to imminently engage in the allegedly infringing conduct.' " Starter Corp. v. Converse, Inc., No. 95 Civ. 3678, 1996 WL 694437, at * 2-* 3 (S.D.N.Y. Dec. 3, 1996) (quoting Starter Corp. v. Converse, Inc., 84 F.3d 592, 595-96 (2d Cir.1996)). At a pre-trial hearing, Converse made this concession. As a result, the district court realigned the parties for trial, 2 allowing Converse to open and close to the jury, because Converse now had "the burden of proof on the only remaining substantive issue," namely, whether use of the Starter marks on shoes would infringe upon the Converse mark. Starter Corp. v. Converse, Inc., No. 95 Civ. 3678, 1996 WL 694437, at * 3 (S.D.N.Y. Dec. 3, 1996).

Trial began on December 9, 1996 and lasted nine days. Prior to opening statements, Starter sought a ruling to preclude Converse from referring to letters exchanged between the parties in connection to the 1990 Agreement. Starter argued that the letters were inadmissible as evidence at trial because they constituted settlement negotiations, barred pursuant to Fed.R.Evid. 408. The district court explained that although the letters could be regarded in part as statements made in compromise negotiations, they were also held up by Converse as evidence of its estoppel claims. However, regarding the letters written by Converse's counsel, the district court ruled that even if they did not fall within the ambit of Rule 408, they were inadmissible as hearsay. On the other hand, the letters from Starter's counsel to Converse were admissible as non-hearsay party admissions. In his opening remarks to the jury, Converse's attorney mentioned Starter's letters which lead to the 1990 Agreement. As a result, Starter moved for a mistrial, which was denied without explanation. Id.

Much of Converse's proof at trial focused on the settlement negotiations and the 1990 Agreement. Seven of the fifteen trial witnesses spoke to the terms of the settlement. Over Starter's various objections, Converse was permitted to introduce the 1990 Agreement as well as extrinsic correspondence before and after the date of that agreement.

The jury returned affirmative answers to all four special verdict questions, finding: (1) that Starter's use of its S-and-Star Mark on athletic footwear would cause a likelihood of consumer confusion; (2) that Starter's use of the Composite Mark on athletic footwear would cause a likelihood of consumer confusion; (3) that there was a binding contract between Starter and Converse that Starter would not use its marks on athletic shoes; and (4) that Starter was estopped because Starter made oral representations that it would not use its star marks on athletic shoes. See Starter Corp. v. Converse, Inc., No. 95 Civ. 3678, 1997 WL 391266, at * 1, * 9 App. A (July 11, 1997) (Special Verdict Form). After trial, Starter moved for judgment as a matter of law, pursuant to Fed.R.Civ.P. 50(b), both as to the likelihood of confusion and as to Converse's estoppel claims. In the alternative, Starter moved for a new trial, pursuant to Fed.R.Civ.P. 59. Subsequently, the district court denied all post-trial motions. Id. at * 9.

In its judgment entered December 31, 1996, the district court indicated that it planned sua sponte to enter an injunction against Starter based on the jury's verdict. In a letter to the court, Starter objected to the imposition of an injunction based on the fact that Converse had stipulated to withdraw its counterclaims which supported this relief and had not sought this relief. In an order dated January 8, 1997 and a memorandum opinion and order dated July 11, 1997, the district court confirmed its intention to enter an injunction against Starter depending on the outcome of the post-trial motions. At no time did Starter request a hearing on the matter. On July 24, 1997, the court entered an injunction against Starter, the terms of which will be discussed in greater detail below.

II. DISCUSSION

On appeal, Starter contends that the district court abused its discretion...

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